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Banking Crisis Project

The banking crisis of 1907 began when copper prices collapsed and stock prices fell significantly. This led to bankruptcies of insurance companies and trusts like the Knickerbocker Trust Company. There was a run on Knickerbocker which caused other banks to start collapsing as well. J.P. Morgan gathered leading bankers and financial experts to provide funding to weaker institutions to prevent further collapse. This crisis highlighted flaws in the American banking system and lack of a central bank. It ultimately led to the formation of the U.S. Federal Reserve system to prevent future panics.

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84 views9 pages

Banking Crisis Project

The banking crisis of 1907 began when copper prices collapsed and stock prices fell significantly. This led to bankruptcies of insurance companies and trusts like the Knickerbocker Trust Company. There was a run on Knickerbocker which caused other banks to start collapsing as well. J.P. Morgan gathered leading bankers and financial experts to provide funding to weaker institutions to prevent further collapse. This crisis highlighted flaws in the American banking system and lack of a central bank. It ultimately led to the formation of the U.S. Federal Reserve system to prevent future panics.

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banking crisis project

What happened?
a. Because of President Andrew Jackson, the US had no central bank and
the money supply fluctuated with the country's annual agricultural
cycle. Every Fall the money flowed out of the city when harvests were
bought and so to gain money back, interest rates were raised.
b. In 1906 there was an earthquake in San Francisco and New York sent
money to aid reconstruction which had put more stress in the money
supply and insurance companies became bankrupt and stock market
shares started to fall.
c. Copper prices collapsed and stock prices fall by 18%
d. There were fines against Standard Oil. Stock prices fell again
e. Augustus and Otto Heinze tried to run a scheme in the copper market
but the plan ultimately backfired. This scheme ended up bankruptung
them. The Knickerbocker Trust was also involved in the scheme
f. The National Bank of Commerce no longer accepted checks for the
Knickerbocker Trust Company
g. There was a run on the Knickerbocker Trust Company bank.
h. More banks started to collapse
i. New York banks stopped making the short-term loans
j. Wall street stocks exchange started to crash

How was it solved?


JP Morgan got the leading bankers and financial experts to his home
where they set shop in his library. They got together and channeled
money from the strong institutions to weaker ones to keep them
afloat. With the help of the government and the business leaders
improved the conditions.
Who was to blame?
Political parties believed that the American banking system was flawed
and need to change.
Business leaders believed that Roosevelt's progressive legislation had
hurt the natural order of the economy and the government should
stop its meddling with the economy
Loan interest rate
GDP
Unemployment
Stock market
What did the government do to prevent this from
happening again?
This led to the formation of the US federal reserves system

Fun fact
The panic was also changed the voting behavior of American. This
made people vote less for Republicans who had dominated the post-
Civil War era and vote more toward the Democrats..
Work cited
https://en.wikipedia.org/wiki/Panic_of_1907
https://www.smithsonianmag.com/history/the-financial-panic-of-1907-running-
from-history-82176328/
https://bigpicture.typepad.com/comments/images/2007/11/19/macro_trends_1885
1913.png
https://scholar.harvard.edu/files/rogoff/files/voxeu_102212.pdf
https://study.com/academy/lesson/what-was-the-panic-of-1907-timeline-causes-
effects.html

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